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The ghost stirring up markets

Messaging service company Snap has gone public on Wall Street. Investors helped the stock take off the ground, but the IPO entails a number of risks, as the firm's business model is weak, argues DW's Sophie Schimansky.

There's been a lot of hype surrounding the public offering of tech company Snap. On Thursday morning, its market valuation surpassed all expectations. Snap CEO Evan Spiegel is promising investors a success story that rivals Facebook's. But still they are many risks.

What happens when the technology world's friendliest ghost gets listed on the stock market? Flesh-and-blood mortals go IPO-crazy. That's what happened on the floor of the New York Stock Exchange, with people crowding in to catch a glimpse of Snap founders Bobby Murphy and Evan Spiegel.

Actual demand among investors exceeded analyst's and even Snap's most optimistic expectations. In fact, anticipation of Snap's IPO was downright euphoric. The company snapped up a total of $3.4 billion (3.24 billion euros) in the private financing rounds from more than 20 investors, including Alibaba's Jack M. However, analysts fear Snap's IPO poses a number of risks for investors. Triton Research CEO Everett Wallace points to Snap's less than mature business model.

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Still, it's highly popular Snapchat app allows users to send pictures and short videos that self-delete after being viewed. Its numerous photo filters are especially popular. Users can take selfies that transform them into a dog, a pumpkin, or a devil, or maps another person's facial features onto their own. Snap's more ambitious projects include Spectacles, colorful sunglasses with a built-in camera that can take pictures and upload them. Snap is also developing a drone to take aerial photos and videos.

Snap generates revenue through ads that display in the so-called "stories" that users generate. Although the company hasn't released concrete sales figures, in all probability, it took a loss of $500 million last year.

That sounds suspiciously similar to Twitter. Since its inception in 2006, the social media platform has failed to become profitable. Last quarter results reported a loss of $103 million, or 15 cents a share. The share price was $26 in November 2013, and now stands at around $16 dollars.

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Snap shines on Wall Street

Snap shines on Wall Street

But Snap's Evan Spiegel remains ever optimistic. Early this year he claimed the company will be the next Facebook, not the next Twitter. Facebook's initial public offering started at $36 a share and is now over $130. Snap investors are licking their chops at the prospect of that kind of success.

Be cautious!

Rob Enderle of the Enderle Group said there are several reasons not to invest in Snap. He points to an unstable economic environment, uncertainly in the Trump era and rising interests that make alternative investments look more appealing. Enderle expects 2017 to be a volatile years that could frighten away tech investors.

Of course, this is also true for other companies hoping to go public this year. Not many tech companies have dared to make the leap recently. There were 26 in 2016, that raised a total of $4.3 billion. That's the lowest figure since 2009 according to analysts from Dealogic. Even Airbnb and Uber are still fighting to achieve those big gains. And Uber will likely pull in twice as much for investors as Snap. Evan Spiegel brushes away these concerns, and many investors will likely ignore the risks inherent in Snap's business model.

At the moment enthusiasm alone seems to be lifting Snap up. User numbers are growing rapidly in comparison to Facebook and Twitter. More than 150 million people worldwide actively use the video sharing app every day. For now, Snapchat is leaving Twitter in the dust.

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Spotify

The global music streaming market leader, which boasts more than 40 million paying subscribers, has long been rumored to go public. A recent report on TechCrunch now suggests the Sweden-based company is finally preparing to hit Wall Street - but not before 2018.

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Uber

"I feel like we maybe just entered high school," CEO Travis Kalanick recently told Vanity Fair magazine. "It's not time to go to prom yet," he said, shutting down speculation about an initial public offering. And indeed, Uber is still not profitable and faces a sexual harassment scandal. But it is also valued at a staggering $68 billion (64.5 billion euros). Maybe it is prom time soon.

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AirBnb

The home-sharing company operating in 191 countries is getting "IPO-ready," CEO Brian Chesky recently told WIRED. But he added they were not in a hurry to go public and would hold back until they were fully prepared. Meanwhile, they've worked on adding new services, such as flight-bookings, to their offer.

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Vice Media

Co-founders Shane Smith and Suroosh Alvi turned digital publishing upside down. The brand's edgy and bold approach captures a young audience and sees them continue to grow internationally. After collecting investments from the likes of 21st Century Fox and Disney, it seems more and more likely that 2017 is their year to go public.

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Dropbox

It has long been speculated that Dropbox may go public - but their rival Box's disappointing IPO raised concerns about the success of file-sharing platforms on the stock market. Yes, Dropbox has 500 million registered users worldwide. But many of them only use its free service. That is why Dropbox is now looking to add to their 200,000 paying corporate users ahead of a potential IPO.

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Palantir

Not much is known about the inner workings of Palantir, the big data company whose data-crunching software supposedly helped capture Osama bin Laden. But CEO Alexander Karp last year called going public a possibility.